Before the last financial crisis in 2007/2008 sub-prime mortgages were all the rage. The idea was that if mortgage lenders put a pot-pourri of mortgages in a parcel, the risks attaching to mortgages at the lower end of the security spectrum would, statistically, be offset by those at the higher end, and the package itself would then be euphemistically labelled a “collateralized debt obligation” (CDO) and classified as a self-standing tradable security carrying its own rating, somewhere between AAA to BBB. (Anything less than BB is classified as “junk”.)

These mortgage packages themselves were “sliced and diced” and flexibly packaged by lenders to be traded between investment banks and mortgage companies. Even the government-backed home loan agencies “Fannie Mae” and “Freddie Mac”, originally established to encourage home ownership among the poorer classes, got in on the act, unwittingly sealing their own demise in the process.

The subliminal theme underlying the perception of low risk at the heart of the entire process was: “Who would be crazy enough to risk their home by not keeping up with mortgage payments? Cutting down on holidays and entertaining bills, maybe even clothes – but missing out on mortgage payments? Never!”